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CIPAA takes 80 – 95 working days to complete
Yes, you read it right. CIPAA 2012 only takes about 80 – 95 working days to complete.
Before the enactment of Construction Industry Payment and Adjudication Act 2012 (CIPAA 2012) which came into effect on 15.04.2012, the parties have to go through the lengthy and time-consuming process of arbitration or court proceeding to recover outstanding professional fees or payment for work done.
As a result, the cash flow will be gravely affected and often time, the Contractor / Consultant will be short-changed and pressured into settling the matter with a much lower payment in order to resolve the cash flow issue.
The introduction of CIPAA 2012 offers a quick and efficient procedure to this problem as the Adjudication Decision can be rendered within 80 – 95 working days and the Winning Party may then enforce the Adjudication Decision and recover the outstanding payment or professional fees.
Summary of CIPAA 2012 Process
Here’s the summary of the procedures of CIPAA Adjudication proceeding:
- Payment Claim (Form 1)
The Unpaid party shall serve the Payment Claim to non-paying party to initiate the CIPAA Proceeding.
- Payment Response (Form 2) +10 working days
Upon the receipt of Payment Claim, the Non-paying party may serve the Payment Response to the Unpaid Party within 10 working days to outline the amount admitted or disputed with its reasons.
- Notice of Adjudication (Form 3)
After the expiry of 10 working days to serve Payment Response, the Unpaid Party may initiate the adjudication by way of Notice of Adjudication.
- Appointment of adjudicator
The Adjudicator may be appointed by mutual agreement or by the Director of AIAC if the parties fail to reach a consensus.
- Adjudication Claim (Form 7) +10 working days
The Claimant shall serve the Adjudication Claim within 10 working days from the acceptance of appointment by the Adjudicator.
- Adjudication Response (Form 8) +10 working days
The Respondent will then have to serve its Adjudication Response within 10 working days from the receipt of Adjudication Claim.
- Adjudication Reply (Form 9) +5 working days
The Claimant may serve its Adjudication Reply within 5 working days from the receipt of Adjudication Claim.
- Delivery of Adjudication Decision +45 working days
The Adjudicator will deliver the Adjudication Decision within 45 working days from the service of Adjudication Response / Adjudication Reply, whichever is later.
- Enforcement of Adjudication Decision
The Claimant may then proceed to enforce the Adjudication Decision based on the available methods under Part IV of CIPAA 2012 by either
Request direct payment from the Respondent’s Principal;
Suspension / slowing down the work;
Enforce the Adjudication Decision as if it is a court judgment.
Complete Guide to the Procedure of CIPAA 2012 Adjudication Proceeding
The rationale and objective of the enactment of CIPAA 2012 is to resolve construction payment dispute expeditiously.
As such, the Parties of CIPAA Adjudication Proceeding must adhere strictly to the timeline envisaged in CIPAA 2012. If there has been a non-compliance in respect of time, the Adjudicator retains full discretion to set aside the Adjudication Proceeding pursuant to Section 26(2)(b) of CIPAA 2012. As such, it is imperative that the Parties fully understand the procedure of CIPAA 2012 Adjudication Proceeding.
It shall be noted that the party who has not been paid is known as “Unpaid Party” in the Claim Stage and later as a “Claimant” in the Adjudication Proceeding.
On the other hand, the party against whom the payment claim is made is known as “Non-Paying Party” in the Claim Stage and later, as a “Respondent” in the Adjudication Proceeding.
(NB: the party who commences the Adjudication Proceeding will be known as the Claimant. However, there is no impetus for a Non-Paying Party to commence the Adjudication Proceeding and as such, the Unpaid Party is commonly the Claimant in the Adjudication Proceeding.)
Payment Claim
To initiate a claim pursuant to CIPAA 2012 to recover the outstanding payment, the unpaid party (consultant / contractor) shall issue a ‘Payment Claim’ to the non-paying party, being the employer who refuses to pay.
Section 5 of CIPAA 2012 stipulates that the Payment Claim shall include the amount claimed, due date for payment, details of the claims, descriptions of the work or services and a statement that the Payment Claim is made pursuant to CIPAA 2012.
It is important to note that there shall be strict compliance with the requirements of Section 5 of CIPAA, failing which it may render the Payment Claim invalid and liable to be set aside.
Payment Response
Following the receipt of Payment Claim, Section 6 of CIPAA provides that the non-paying party has 10 working days to reply by way of ‘Payment Response’.
The Payment Response shall contain the amount admitted or disputed by the Non-Paying Party.
If the Non-Party fails to respond with a Payment Response, the entire Payment Claim shall be deemed to be disputed.
After the Federal Court’s decision in the case of View Esteem Sdn Bhd v Bina Puri Holdings Bhd [2018] 2 MLJ 22, the significance of the filing of Payment Response has been reduced significantly.
The non-paying party does not suffer any prejudice by its failure to submit a Payment Response. As such, for strategic reason, non-paying party often does not want file the Payment Response or leave out its core defence to ambush the claimant in the Adjudication Response.
Initiation of Adjudication Proceeding
If the Non-Party fails to submit a Payment Response after 10 working days or dispute any part of the Payment Claim, the Unpaid Party may proceed to initiate the Adjudication Proceeding by way of ‘Notice of Adjudication‘ pursuant to Section 8 of CIPAA.
At this stage, the party who initiated the Adjudication Proceeding will be referred to as “Claimant” and the other party will be referred to as “Respondent”.
Once the AIAC received the Notice of Adjudication and the Notice to Register the Adjudication, AIAC will proceed to assign an adjudication number to the dispute.
Appointment of Adjudicator
Concurrently, the parties may also proceed to appoint an Adjudicator to decide on the matter.
The Adjudicator may be mutually appointed within 10 days from the service of Notice of Adjudication, failing which the Claimant shall request the Director of AIAC to appoint an Adjudicator within 5 working days from the request.
Alternatively, the parties may request the Director of AIAC to appoint an Adjudicator directly.
Adjudication Claim
Upon the appointment of Adjudicator, the Claimant will be directed to serve and file the “Adjudication Claim” on the Respondent and Adjudicator within 10 working days from the date of acceptance of appointment.
At this stage, the Claimant should submit a more comprehensive and detailed claim together with the supporting documents.
The claim shall clearly outline the nature and the description of the dispute and the remedy sought thereunder.
Adjudication Response
Upon the receipt of Adjudication Claim, the Respondent shall respond to the Adjudication Claim with “Adjudication Response” within 10 working days.
Similarly, at this stage, the Respondent will have to submit a more comprehensive and detailed defence, counterclaim(s) and/or set-off together with supporting documents.
Adjudication Reply
Upon the receipt of Adjudication Response, the Claimant has a final opportunity to reply to the Respondent’s Adjudication Response with “Adjudication Reply” within 5 working days.
Adjudication Decision
Lastly, the Adjudicator will have 45 working days from the service of Adjudication Response / Adjudication Reply (whichever is later) to render the Adjudication Decision.
If the Adjudicator fails to render the Adjudication Decision within 45 days, the Adjudication Decision will be rendered void unless otherwise agreed by the parties.
Enforcement of Adjudication Decision
If the Adjudication Decision is in the Claimant’s favour, the Adjudication Decision is binding unless it is set aside by the High Court or finally decided by arbitration or court.
If the Non-Paying Party / Respondent refuses to comply with the Adjudication Decision, the Claimant may then proceed to enforce the Adjudication Decision by the following methods either concurrently or separately:-
1) Enforcing the Adjudication Decision as a judgment;
2) Suspension of work
3) Request for direct payment from the principal;
4) initiating winding up procedure against the Respondent
CIPAA Flow Chart
The Construction Industry Development Board Malaysia (CIDB) Malaysia has also taken the initiative to provide a CIPAA Flow Chart
* Source: http://www.cidb.gov.my/images/content/cipaa/CIPAA-Flow-Chart.jpg